U.S.-based digital health startups brought in almost $30 billion in 2021, almost doubling the total investment the year prior. This article is part of Bain's 2022 M&A Report. The Bellevue funds have NOT been licensed for public offer or sale to the public in the United States in accordance with the US Investment Company Act of 1940 or the US Securities Act of 1933, or in Canada, Japan, Taiwan, Malaysia, Hong Kong or Israel in accordance with the laws in force in those countries. Why does this matter? I also believe that this valuation trend is just now beginning to pressure private market valuations. Ultimately, virtual care companies will be early adopters of these new tools and as they scale, help transition the pre-existing ecosystem away from legacy platforms. With that in mind, we looked to our community of founders and aggregated their predictions for 2022. By using the website www.bellevue.ch, you confirm that you have read, understood and accepted the general information provided by the Bellevue Group AG as well as these legal provisions. Global Strategy on Digital Health 2020-2025. That reflects a 70% decrease in the value of revenue within our peer group in an environment in which revenue estimates are rising. Rock Health Advisory provides guidance on digital health strategy, access to proprietary funding data, and in-depth perspectives on the digital health market. The management company may decide to cancel the arrangements it has made for the distribution of the units of its collective investment undertakings in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU. The re-emergence of the independent clinician also gives rise to a new go-to-market channel: the new D2C or Direct to Clinician. As clinicians have increasingly become consumer-facing during the pandemic while educating the public via social media, they have become an addressable class of customers with specific needs, uncoupled from the four walls of a clinic or hospital. Use the PitchBook Platform to explore the full profile. In part a response to COVID-19, investors have poured $4.0 billion this past quarter into 97 digital health companies (per Rock Health), suggesting that this sector will likely see more than $12.0 billion invested in 400 companies for the year. 2022 marks the 13th anniversary of the passage of the HITECH Act which ushered in the digital era in healthcare. Q4 2022: How did the Swiss valuation parameters and the European M&A volume develop? Health tech grabbed a serious share of the attention. 4 Abs. eCommerce businesses are generally valued on a revenue multiple to reflect high growth potential and recurring or repeat revenue patterns. Privacy policy. The front-and-center focus on efficiency gains boosted investment for nonclinical workflow solutions. This is what we finance types call a re-rating. However, if capital flows begin to tighten as capital access tightens, we could be in store for a sharp pullback in startup valuations as well. If I were the CFO of a startup today, I would be preparing to extend my fume date as long as possible and survive what feels like a pending capital access contraction. Despite differences in patient population, specialty focus, or go-to-market strategy, these care delivery companies are digital-first: they have multidisciplinary expertise across business, engineering, and medicine, and iterate and build consumer-centered products in a fast and agile way. For high performing companies, the valuation premium is much higher. In particular, you should not enter into any investment before you have read the corresponding fund agreement or legal prospectus, the annual and semi-annual reports, the articles of association (as far as they are applicable), as well as all other documents, as required in accordance with local legislation or the regulations applied in the legal jurisdictions or countries in which the corresponding investment fund has been licensed or approved for public offer or sale to the public. Surgery Partners. Published on 15 November 2022, 09:32 America/New_York. Funding for Digital Health Companies has continued to grow year on year. The swiss agent is IPConcept (Schweiz) AG, In Gassen 6, PO Box, CH-8022 Zurich. In fact, the group is down 50% versus the S&P 500, which is up 10% during that period. HealthTech has the potential to make healthcare more accessible and convenient far beyond the worldwide pandemic. These companies will focus on different steps in the value chain of virtual care: For example, (1) communication and remote patient monitoring with companies like Memora Health and Avon Health, (2) EHR, data storage and analysis with companies like Zus Health, Healthie, and Canvas Medical, (3) provider workforce management and productivity with companies like our portfolio company AspenRx, and (4) billing and payment pipes with companies like Candid Health. Clinical outcomes will support patient adoption.. As a three-year digital health funding cycle comes to a close, the investment market will recalibrate to a more sustainable run rate. This year's winning companies include startups working on interoperability and data integration, home care and monitoring, AR/VR in healthcare, hybrid care, and more. However, there are signals that funding could start to inch back up again: investors have dry powder stockpiled, and difficult exit climates are likely to draw late-stage digital health companies back to the fundraising table. Deal count rose from 48 in 2020 to 75 in 2021, a record. Aaron Snyder, founder and CEO of US Health Partners, highlighted, COVID-driven burnout and increased administrative burden will drive hospital-employed clinicians to the private sector in record numbers in the coming years.. The funds are currently registered for public distribution offer in the following countries: Luxembourg, Switzerland, Germany, Austria, Spain and Portugal. Investors aggressively fundraise into the downturn. [15] VALUATION The three most common valuation approaches - the Income, Market and Cost Approaches - can all be applied when valuing a physical therapy practice. Hampleton Partners, an M&A advisory firm specialised in technology companies, has recently published their 2022 Report on the state of HealthTech. As weve shared before, some of 2022s missing mega deals stemmed from growth-stage digital health companies reluctance to raise in this market environment for fear of the dreaded down round. Multiples expected to hold strong in 2022. We expect to see a record number of acquisitions as large digital health companies, both public and private, recognize the need to add mental health to their offerings to deliver comprehensive care., There has been much debate about the tension between DTC companies doing good by expanding access or doing harm by scaling irresponsibly. Several companies in this category have grown during 2021, including Truepill, which has become a best-of-breed API for pharmacy fulfillment and Wheel, which is a leading clinician matching marketplace. The McKinsey Global Institute estimates the costs saved could lie anywhere between $1.5 trillion and $3 trillion a year by 2030, thanks to a range of interventions such as remote monitoring, artificial intelligence, and . peer support groups, events), and care navigation, said Dana Clayton, COO of Folx. Funding for digital health ventures reached an all-time high in 2020 with a total of $23.3 billion and the first half of 2021 is already nearing last year'stotal, with $21.5 billion invested. Several D2C digital health equities including Peloton (-78%), Owlet (-79%), and Beachbody (-78%) ended the year at fractions of their 2022 opening prices. While the sector was expanding before COVID-19, the pandemic has caused a critical acceleration toward digitalising systems, with HealthTech solutions booming. This has resulted in an increase in valuation multiples for platform acquisitions from 7.6x EBITDA in late 2000s up to 14x EBITDA in 2021 (see Figure 9). Here are 16 statistics on the valuation multiples most typically observed for various interests in predominantly in-network centers: Minority interest, single-specialty. The performance data are calculated without taking account of commissions and costs that result from subscriptions and redemptions and commissions and costs have a negative impact on performance. 2021 was generally a very challenging year for small and mid-sized growth stocks. What does this mean for startups? These can be obtained free of charge in German from Bellevue Asset Management (Deutschland) GmbH, your advisor or intermediary, the paying agents, the responsible depositary (UBS Europe SE, Bockenheimer Landstrasse 2-4, D-60306 Frankfurt am Main) or from the management company Donner & Reuschel AG, Ballindamm 27, 20095 Hamburg, https://www.donner-reuschel.de. Investing in early stage mental health and addiction solutions. There are some companies we can point to that are similar in how they generate revenue, who their customers are, as well as their growth rates and margins, but it is almost always impossible to find the perfect pure-play comp. We believe that digital health solutions that can address and service these ESG or social aspects in the employer-psyche will stand out from the noise in the employer channel. Last year we predicted that the commoditization of telemedicine would unlock holistic virtual care. 2022. Health systems also took steps to shift toward care models that decrease operational burden. Therefore, particular importance is attached to ensuring that these sites are not intended for legal entities or natural persons, who have their registered office or who reside in such countries, their territories or dependencies or who, on account of their citizenship or similar status, are subject to the law of one of these countries. Registered address: Spaces, Mappin House, 4 Winsley Street, London W1W 8HF. 3.5 to 3.9 times: 15 percent. Dear valuation folks, our new market essentials is out with data on risk free rates, beta, multiples etc. In a tight labor market, employers are keen to attract and retain the best and most diverse workforce and many employees expect certain benefits as part of the compensation package. Others expanded their revenue potential by diversifying into B2B. The median check size for Series A deals reached an all-time high of $15M in 2022, while median deal sizes shrunk across all other later deal stages.4. Given the rise of many pill mill businesses, we expect the FDA and other regulatory bodies will enforce increased clinical protocol scrutiny. A few months ago, it was detrimental for a digital health startup to say it was profitableit implied the company wasnt growing fast enough. If the past two years have demonstrated anything its that healthcare innovation is driven and inspired by patient needs, clinicians, and builders who strive to better the frontlines of care. 2022 Public SaaS Valuation Multiples. In part because of hospital-at-home excitement, on-demand healthcare landed the top-funded digital health value proposition spot of 2022 ($2.4B), led by urgent-care-at-home service DispatchHealth ($330M) and startups like Homeward Health, which raised twice in 2022. Now we must discount the exit value to obtain the post-money valuation as shown below: Post-money valuation = Exit value / (1 + IRR)^5. More than $26 billion dollars were invested across almost 700 US health tech companies at soaring valuations (up from $14.6 billion across 464 companies in 2020). For information on opportunities and risks as well as tax information, please refer to the current detailed sales prospectus. The image above is an example of Comparable Company Valuation Multiples from CFI's Business Valuation Course. With all these forces compounded, several hospitals across the U.S. recorded losses of over one billion dollars in 2022. Rated 4.3 by 3 people. An increasing number of venture funds are entering the space. The global digital health market reached a value of US$ 289 Billion in 2021. The list below shows some common equity multiples used in valuation analyses. But the principle driving revenue multiples is that startups of a particular industry operate in similar . Two quarters ago, we noted a shift in investors attention from growth-stage players to early-stage digital health companies perceived as less likely to carry inflated valuations from 2020-2021. I suspect that as long as investors are seeking yield, then moving further down that risk spectrum into the private markets, valuations in the startup world will not come in. 2. All but one company have rising revenue expectations on the whole across all analysts. As a cherry on top, burnout pushed record numbers of clinicians to retire or work fewer hours, which kept health systems in crisis modeand paying crisis wages. Deeper clinical services translate into lower margins and more extensive and expensive clinical apparatus. Numerator / Denominator = Ratio = Business Value / Business Metric = Multiple. Ulili Onovakpuri, Managing Partner, Kapor Capital, Investors interested in strong horses spent 2022 scoping out earlier-stage opportunities. Volatile active user numbers and declining profitability due to weakened advertising revenue deeply depressed Big Tech stock prices, and we expect that these pressures will further push the MAMAA crowd toward new revenue opportunities outside of tried-and-true social media advertising. For growth-stage startups that didnt raise in 2022, limited cash reserves may push once-crowned digital health unicorns back to the fundraising table (possibly at lower valuations) or toward M&A territory. In 2022, there is an opportunity for a new crop of companies to successfully build the connective tissue between the physical and digital worlds. While we may see some of the valuation gaps between public and private markets narrow in 2022, we continue to be optimistic that the IPO market will remain open and create more opportunities for M&A in our industry. Valuation Multiples Over Last 12 Months The single biggest question facing my business today is what valuation multiple is the right one to use when pricing private financing rounds in this space. The digital health market is on fire. However, that field is under some scrutiny. Growth and crossover funds that are new to digital health have been particularly active in digital health (e.g., Tiger Global made 25 digital health investments in 2021) On the other hand, 55% of digital health investors in 2021 were repeat investorssimilar to the average 58% repeat investors across the prior three years 2018-2020 cerebral.com; Hinge Health: The digital musculoskeletal clinic, which partners with employers and health plans, is valued at $6.2 billion and announced a $400 million Series E funding round in October. Notably, 2022's year's Q4 $2.7B total was less than half of last . Since that time, our industry has quickly matured from the infant stages of technology adoption (think: EMRs, HIE, PHM) to its current teenage digital health self. Restrains on movements forced most businesses to move their day-to-day operations online, including many health clinics and GPs. Healthcare VC fundraising hit nearly $22B in 2022 second only to the record set in 2021 with an unprecedented amount raised in the first half of 2022. Health systems are looking for digital solutions that are easy to understand, can be deployed relatively quickly, and deliver tangible cost savings and efficiencies. Healthcare workers can search for more flexibility, better pay, and motivation to change the legacy system. By submitting this form I give permission for Finerva to contact me. At one point, the group traded at 15.4x NTM revenue and most recently traded at 4.6x NTM revenue. The value of revenue is being re-rated by the markets as the macro capital environment tightens. For the digital health sector, 2022 was a downhill rideone that we think signals the tail end of a macro funding cycle centered around the COVID-19-era investment boom. The information provided is accurate at the time of publishing. This website uses cookies, which are necessary for the technical operation of the website and which are always set. Value on investment alongside return on investment, Additional predictions from healthcare leaders. End-to-end automation with human-in-the-loop AI will decrease the amount of manual administrative work, decrease staff burnout rates, and increase patient access to medication in healthcare., Ogi Kavazovic, Cofounder and CEO, and Tesh Khullar, Cofounder and President, HouseRx: Further consolidation in specialty pharmacy space, likely led by PBMs acquiring specialty pharmacy competition, which once again will result in fewer patient options and a suboptimal patient experience.. Its too early to say whether weve reached the end of this macro funding cycle, or if more low funding quarters are on the horizon. The value of investments may be subject to fluctuations and, under certain circumstances, investors may not get back the full amount invested. However, we believe that a highly selective portfolio of fast-growing, transformative and disruptive companies offering digital technologies that improve healthcare services and systems while lowering costs can quickly bounce back from short-term stock market trends. Similar to the transition that ecommerce and retail industries had over the last 20 years. In the last year alone, over 200 mental and behavioral health startups received over $4 billion in new capital to scale. In 2022, 35 digital health startups raised rounds of $100M or more. Larger deals and more of them characterized the healthcare IT (HCIT) market in 2021. Austria: Paying and information agent: Zeidler Legal Process Outsourcing Ltd., SouthPoint, Herbert House, Harmony Row, Grand Canal Dock, Dublin 2, Ireland. Meta applied its artificial intelligence chops to protein folding, and Apple invested in proving out the clinical fidelity of its wearable devices. We expect healthcare companies that provide an omnichannel patient experience, integrating online and offline care, will more likely succeed longer term compared to one-modality options. Tech, Trends and Valuation. In the second half of 2021, the trailing 12-month median EV/S multiple was 5.6x up from from a 3.6x the previous period and 3x the year prior. In particular, you should not enter into any investment before you have read the corresponding fund agreement or legal prospectus, the annual and semi-annual reports, the articles of association (as far as they are applicable), as well as all other documents, as required in accordance with local legislation or the regulations applied in the legal jurisdictions or countries in which the corresponding investment fund has been licensed or approved for public offer or sale to the public.rlich sind. What is occurring in the public markets, and how do these developments impact startups and VCs in the digital health and mental health markets? Although we continue to see red-hot valuations in the mental health space, I have to wonder, when will the re-rating of earnings in the public market impact private markets? In 2022, the rate of decline accelerated: H1 2022 averaged $5.2B in quarterly funding, and in H2 2022 average quarterly funding fell to $2.4B. We believe changes in consumer demand and reimbursement patterns will drive the adoption of this same business model across other medical specialties where companies can aggregate demand for services to negotiate better rates with insurers. But overall, the average revenue multiple of 2.3x to 2.6x is 50% to 60% lower than the revenue multiples of tech companies in 2022. 80 people interested. For example, a Seed startup could be valued using 50-60% IRR, whilst a Series A startup would instead use 40-50%. Furthermore, as virtual care companies ask their clinicians to take more license risk, the clinical workforce will exert more pressure on their employers to also abide by clinical protocols and do no harm.. This may involve platforms for career development, benefits, and inspiring company culture and values. 3. 1.91K Followers. 5 paragraph 1 and 3-4 FinSA and Art. In 2021, we saw a tidal wave of resignations across employment categories, sending shockwaves throughout healthcare. Bottoms-up sales strategies may become the norm as companies evangelize clinicians as their customers and focus on use cases spanning clinician-focused fintech products, retail, healthcare, and online community-building ecosystems. Further information on investor rights can be found on the Management Company's website (https://www.ipconcept.com). Q4 2022: How did the Swiss valuation parameters and the European M&A volume develop? The unprecedented number of M&A deals, as well as consistently goodand growingrevenue multiples shows that the HealthTech sector is approaching its maturity, and its keeping its momentum in the crucial stages of the post-pandemic era. Adoption of B2B models doesnt necessarily change a D2C companys customer-centricity. Retail clients: according to Art. If I just raised a huge round at a massive valuation, I would certainly be trying to grow, but I would have one eye on pure survival as well. 2023 will likely see some fallen unicorns accept acquisition bids if cash reserves are short. Funding for this value proposition earned third place in 2022 ($2.2B), jumping from seventh place in 2021. As we start the new year, we at BVP are excited to forge ahead and partner with audacious healthcare entrepreneurs who want to create revolutions of their own. The last 18 months have increased valuation complexity in the media sector. We recommend individuals and companies seek professional advice on their circumstances and matters. Hampleton Partners, an M&A advisory firm specialised in technology companies, has recently published their 2022 Report on the state of HealthTech. Healthcare IT surged as the digital transformation accelerated across sectors. With recession concerns looming, H2 2022s quarterly average of $2.4B may be a bellwether for the next several quarterswhich means that 2023 could be digital healths first $10B or lower year in venture funding since 2019. For example, in mental health, the massive uptick in need has driven a huge amount of activity and access, however clinical and financial outcomes remain opaque. An example was seen in early 2022 when Stryker issued a takeover bid for Vocera, a leading provider of communication software and hardware for hospitals. The European market in particular saw investment levels skyrocket by a whopping 131% from $2.9bn in 2020 to $6.7bn in 2021. Based on M&A transactions over the last 5 years, Hampleton Partners found that the median Revenue multiple for PropTech companies was 3.7x. For example, our portfolio company US Health Partners is assisting cardiologists in breaking free from the traditional hospital structure to run independent practices as they transition to digital and value-based care. The financial products mentioned on this site are not suitable for all investors. Report. When we broadly examine what we call the Disruptive Healthcare peer group to get a sense of what is happening in public markets, this may translate into insights about our market, which is at the intersection of digital health and mental health. The management company may decide to cancel the arrangements it has made for the distribution of the units of its collective investment undertakings in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU. All but one company have rising revenue expectations on the whole across all analysts. We see three prominent themes emerging: Lastly, the siloed nature of care doesnt only exist between the virtual and the physical world, it also exists among specialties. This represents a 46% increase on 2021 numbers, and a whopping 70% increase on pre-pandemic (2019 . The most successful companies in this infrastructure category will enable virtual care companies to go to market quickly, be flexible to evolve as companies grow, and integrate seamlessly with other tools and API platforms. Fund documents StarCapital Premium Bonds plus. The behavioral health industry is coming off a record number of transactions and as multiples remain high, companies are having to get smarter about . EBITDA is an acronym that stands for earnings before interest, tax, depreciation, and amortization. Valuation Multiple = Value Measure Value Driver. Inspire Medicals sales expectation for 2021 is around USD 233 mn at a gross margin of 85-86%, impressive numbers compared to 2020. 2022s total funding among US-based digital health startups amounted to $15.3B across 572 deals, with an average deal size of $27M. Additionally, startups that once expected to mega-raise their way into the unicorn club were faced with investors who were less willing to take flights of fancy on $1B valuations; as a result, they may have chosen to delay big raises. For this reason, data quoted in this piece may differ from prior Rock Health pieces due to updated information in our databases. As Avi Dorfman, founder and CEO of Clearing told us: As telemedicine becomes increasingly mainstream, digital infrastructure companies with turnkey offerings will emerge, enabling entrepreneurs to focus product & engineering resources on the creation of personalized patient experiences. $230M / (1 + 50%)^5 < Post-money valuation < $230M / (1 + 40%)^5. Supply chain challenges, inflation, interest rate hikes,3 and investor pullback reversed investment momentum. :-) Clearly, the interest rates are now back to more Hannes Schobinger on LinkedIn: Q4 2022: How did the Swiss valuation parameters and the European M&A This marked a reversal in capital concentration (a funding environment where late-stage companies attract a disproportionate share of total dollars invested), a phenomenon prevalent in digital health from 2019-2021. Inflationary pressures burned consumers discretionary dollars. Employers have begun to acknowledge that increasing access to care requires both a refactoring of existing insurance policies, coupled with investments that quantify and deepen LGBTQ+ specialization in provider networks. Due to the historically low rating, 2022 presents itself with enormous growth potential. Disclosed value also surged from $15.1 billion to $38.1 billion. According to the Digital Health Funding and M&A 2021 First Half Report released by Mercom Capital, the first half of 2021 closed with $14.7 billion invested across 372 US digital health deals with a $39.6 million average deal size. Using this category of valuation multiple indeed has its merits; however, it is also important to note the loopholes as well. Navid Farzad, Partner, Frist Cressey Ventures. The information contained on this site does not constitute a financial, legal, fiscal or any other recommendation. But as the year unfolded and cash grew costly, several of these health experiments were scrutinized, discontinued, or divested. As we redesigned GI care into a patient-centered, value-based model, we recognized that our virtual care supports many important clinical needs, but we also needed to bridge our services with in-person care like colonoscopies and diagnostic tests. Revenue valuations have come in. HealthTech the use of technology to deliver or improve clinical health services to patients was one of the most active and growing industries of 2020. In 2022, the strained supply of clinicians in healthcare is likely to be exacerbated. Later Stage . The sectors that experienced the largest decline were . 2 FinSA, Professional/Institutional investors: according to Art. And clinical workflow software, which earned eighth place in 2022 ($1.5B), moved up from eleventh in 2021. Teladoc Health is a pure-play tech-enabled disruptive healthcare peer that was recently trading north of 20x forward revenue. A mandatory rule is that the represented . Financial or Operating Metric ( EBITDA, EBIT, Revenue, etc.) In the early innings of retail care, questions were raised about the quality of care being delivered; however, access-related benefits for patients and heavy internal and external investment activity suggest that care delivered in the retail setting is here to stay. However, we are certainly preparing for any outcome. The COVID-19 pandemic catalyzed digital health innovation, investment, and regulatory reform throughout 2020 and 2021. Specifically, Teladoc Health(NYSE: TDOC) and Lifestance Health Group (NASDAQ: LFST) have underperformed the broader underperforming peer group.

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